1. The present petition has been filed under Article 226 of the Constitution by a member of the Municipal Board, Chandausi, for a writ of quo-warranto against the opposite party Sri Om Prakash to show the authority by which he is holding the office of the member of the Municipal Board. The Municipal Board Chandausi consists of 25 members including the President who is the exofficio member of the Board. The General Elections took place on the 26th of October 1953 to elect the President and the members of the Board and the petitioner and the opposite party Om Prakash were elected members and one Sri Bhagwati Prasad was elected President of the Board. Formerly the opposite party Om Prakash was an insurance employee and on the commencement of the Life Insurance Corporation Act XXXI of 1956, i.e on the 1st of September 1956, he became an employee of the Central Government through the Life Insurance Corporation of India.

2. Since the 1st of September 1956 he is working as an Insurance Inspector and drawing salary from the branch office of the Life Insurance Corporation of India, Moradabad. The President made an enquiry about him from the Branch Manager, Life Insurance Corporation of India, Moradabad. The petitioner and the President thereafter both objected to his working as a member of the Board on the ground that he was disqualified for being a member of the Board under S. 13-D(f) of the U.P Municipalities Act.

3. The President wrote to the State Government for the removal of the opposite party Om Prakash from the membership under S. 40(1)(b) of the Municipalities Act, but till the filing of the petition no action had been taken against him. On the 20th of October 1956 a meeting of the Board was held and on that date the President asked the opposite party not to take part in the meeting since he had been disqualified, but the opposite party did not agree and participated in the meeting.

4. Therefore on that date the President to avoid any breach of peace did not attend the meeting and the meeting was held in the absence of the President and the opposite party took part in it. On the 29th of September 1956 the opposite party Om Prakash along with 13 others sent a written notice of intention to move a resolution of non-confidence in the President. The notice was delivered to the District Magistrate by six members including the opposite party Om Prakash.

5. The District Magistrate then fixed the 31st of October 1956 for the consideration of the motion of non-confidence. The contention of the petitioner was that having incurred the disqualification under S. 13-D (f) of the Municipalities Act the opposite party Om Prakash had ceased to be a member of the Board from the 1st of September 1956 and was not competent to act as a member of the Board or to sign the notice of intention to make a motion of non-confidence. On these facts the present petition was filed on the 30th of October 1956.

6. Notice was issued by this Court and the non-confidence motion was directed to be stayed pending the disposal of the petition.

7. By means of a supplementary affidavit it was contended by the petitioner that Om Prakash was originally a salaried employee of the Bharat Life Insurance Company Ltd. The management of the Bharat Life Insurance Company Ltd. was taken over by the Central Government on the 19th of January 1956 when the Life Insurance (Emergency Provisions) Ordinance, 1956 came into force and also on the 21st of March 1956 when the Life Insurance (Emergency Provisions) Act No. IX of 1956 came into force.

8. The main contention raised by the petitioner is that by coming into force of the Ordinance on the 19th of January 1956 the management of the Bharat Life Insurance Company Ltd. vested in the Central Government and the petitioner became an employee of the Central Government and ceased to be a member of the Board from that date in view of the provisions of S. 13-D (f) of the Municipalities Act. It was contended further that in any view of the matter on the 1st of September 1956 when the Corporation came into existence the petitioner became an employee of the Central Government through the Corporation and became disqualified to be a member of the Board. He was therefore not entitled to sign the notice of non-confidence against the President and to act as a member of the Board thereafter.

9. Section 13-D(f) of the U.P Municipalities Act provides that:

“13-D. A person, notwithstanding that he is otherwise qualified, shall be disqualified for being chosen as, and for being, a member of a board if he— (f) is in the service of the State or the Central Government or any local authority, or is a District Government Counsel or an Additional or Assistant District Government Counsel or any Honorary Magistrate or an Honorary Munsif or an Honorary Assistant Collector.”

10. The first contention raised by the petitioner's counsel is that with effect from the appointed date, i.e, the 19th of January 1956, under the provisions of the Life Insurance (Emergency Provisions) Act No. IX of 1956 the management of the controlled business vested in the Central Government and thus the opposite party No. 1 became a servant of the Central Government and was disqualified. The Life Insurance (Emergency Provisions) Act No. IX of 1956 replaced the Ordinance No. 1 of 1956. The preamble of the Act provides for the taking over, in the public interest, of the management of life insurance business pending nationalization thereof. Section 3 of the said Act provides that:

‘3(1) On and from the appointed day, the management of the controlled business of an insurer shall vest in the Central Government, and pending the appointment of a Custodian for the controlled business of any insurer, the persons in charge of the management of such business immediately before the appointed day shall, on and from the appointed day, be in charge of the management of the business for and on behalf of the Central Government, and the controlled business of the insurer shall be carried on by them subject to the provisions contained in sub-ss. (3) and (5) and to such further directions, if any, as the Central Government may give to them by notice addressed and sent to the principal officer of the insurer………”

11. Section 4 of the Act gives power to the Central Government to appoint any person as a custodian for the purposes of taking over the management of the controlled business of an insurer.

12. Section 6 of the Act gives power to the custodian to institute proceedings.

13. Section 7 of the Act provides for the payment of compensation for management of controlled business vesting in the Central Government.

14. Section 15 of the Act provides that:

“No person who holds any office of profit under an insurer the management of whose controlled business has vested in the Central Government under this Act shall be disqualified, or ever to have been disqualified, for being chosen as, or for being, a member of either House of Parliament.”

15. Section 2 of the Act defines the words “controlled business” and in short mean “the life insurance business”.

16. Under the Act the management of the insurer company undoubtedly vests in the Central Government. The custodian who is to be in charge of the work is also to be appointed by the Central Government and the management vests in the Central Government. But the question still remains whether the employees of the insurer company become the servants of the Central Government.

17. The company as such does not vest in the Central Government. It is only the management which vests in the Central Government. The employees still continue to be the employees of the insurer company. It may be that the control over the employees after the coming into force of the Act can be exercised by the Central Government through the custodian appointed by the Central Government but the employees still continue to be in the service of the insurer company. The insurer company as such does not lose its legal entity and the relationship of the employer and the employee continues between the insurer company and its employees.

18. Having regard to the provisions of the Act 9 of 1956 in my opinion it cannot be said that the employees of the insurer company become the employees of the Central Government which does not become a substitute of the insurer company by coming into force of this Act. There is therefore no force in this contention of the petitioner.

19. The next contention raised by the petitioner is that under the Life Insurance Corporation Act, 1956 (Act No. 31 of 1956) the opposite party Om Prakash became an employee of the Corporation and thus he became a servant of the Central Government. In this connection twofold contentions have been raised by the petitioner. Firstly, it is contended by him that the establishment of the Corporation is nothing but the agency through which the State has entered into a kind of business activity.

20. By establishing the Insurance Corporation it has nationalised the life insurance business in India, One of the departments of the Central Government functions through the Corporation but the activities of the Corporation are nothing but the activities of the department of the Central Government and as such an employee of the Corporation is an employee of the Central Government. It is contended that it is open to the Government to carry on its activities either through the agency of a department controlled by individual officers or through the agency of a statutory Corporation. But the employees of the agent are only the employees of the principal. It is necessary to examine some of the provisions of the Life Insurance Corporation Act, 1956, in order to ascertain the true import of the Act.

21. The preamble of the Act lays down that:

“It is an Act to provide for the nationalisation of Life insurance business in India by transferring all such business to a Corporation established for the purpose and to provide for the regulation and control of the business of the Corporation and for matters connected therewith or incidental thereto.”

22. The “appointed day” under S. 2 of the Act is the date on which the Corporation is established under S. 3. The Corporation was to be established from the date as the Central Government may, by notification in the Official Gazette, appoint. Sub-section (2) of S. 3 provides that:

“The Corporation shall be a body corporate having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property, and may by its name sue and be sued.”

23. This sub-section gives a personality to the statutory Corporation established in this Act. A Corporation will have a perpetual succession and will: have a right to acquire, hold and dispose of property. Section 4 of the Act provides for the constitution of the Corporation which lays down that:

“The Corporation shall consist of such number of persons not exceeding fifteen as the Central Government may think fit to appoint thereto and one of them shall be appointed by the Central Government to be the Chairman thereof.”

24. The appointing authority, therefore, or it may be even called the creator of the Corporation, is the Central Government. The capital of the Corporation is originally to be five crores of rupees provided by the Central Government after due appropriation made by Parliament by law. The functions of the Corporation are also enumerated in S. 6. They are subject to the rules made by the Central Government. Under S. 7 of the Act the assets and liabilities of the controlled business of all insurers vest in the Corporation. Section 11 of the Act provides that:

“11(1) Every whole time employee of an insurer whose controlled business has been transferred to and vested in the Corporation and who-was employed by the insurer wholly or mainly in connection with his controlled business immediately before the appointed day shall, on and from the appointed day, become an employee of the Corporation, and shall hold his office therein by the same tenure, at the same remuneration and upon the same terms and conditions and with the same rights and privileges as to pension and gratuity and other matters as he would have held the same on the appointed day if this Act had not been passed, and shall continue to do so unless and until his employment in the Corporation is terminated or until his remuneration, terms and conditions are duly altered by the Corporation.”

25. In view of S. 11 of the Act it is clear that after the appointed day every employee of the insurer company becomes an employee of the Corporation with effect from the 1st of September 1956. There is therefore no dispute that the opposite party Om Prakash became an employes of the Life Insurance Corporation of India.

26. The question however to be considered is as to whether the Corporation itself is a department of the Central Government or is an agent and an employee of the Corporation being the employee of the agent of the Central Government is in the eye of law in the service of the Central Government itself.

27. Reliance was placed on the case Krajina v. The Tass Agency, (1949) 2 All ER 274 (A). In this case damages were claimed for an alleged libel in an article headed “Betrayed British Troops to Gestapo” which appeared on May 7, 1948 in the Soviet Monitor published by the Tass Agency and the defence set up by them was that they were a department of a foreign State, the Union of Soviet Socialist Republic, and so entitled to immunity. The finding of the Court of Appeal was that the Tass Agency was not a corporation sole and hence not a separate entity.

28. It was a part of the State Department of the Socialist Republic and thus entitled to the immunity claimed by it. Cohen, L.J, however further observed that even if we had to come to a finding that the Tass was given the status of a separate juridical entity it was not necessary to follow that it would thereby have been deprived of its immunity. The history of legislation in that country as regards the departments of State seemed to him to show that it was quite possible that a State might for certain purposes under its own legislation give some department of State the status and the rights of a juridical entity without depriving the department of its general immunity from suit.

29. Those observations only mean that it is open to give a State Government department a juridical entity. But that case is not an authority for the proposition that a Corporation which is a creature of a statute which has got a right to hold and possess property is a department of a Government so as to make its employees servants of the State. In this case certain American cases were sought to be distinguished. One of the case referred was Pilgar v. United States Steel Corporation, (1925) 127 Atl Rep 103 (B), in which the question was as to the position of the Public Trustee and it was pointed out by Cohen, L.J that:

“Having regard to the terms of the statute constituting the Public Trustee and of the trading with the enemy legislation under which he was made Custodian of Enemy Property, the legislature had made it plan that the Public Trustee was, for purposes of suit, to be regarded, not as an officer of State, but as a trustee liable to suit here and abroad in the same way as a private trusteed”

30. In the case of Ulen and Co. v. Bank Gospodarstwa Kriajowego (National Economic Bank), (1940) 24 NYS (2d) 201 (C) referred to in this, case, “the Polich National Economic Bank had been formed as a share company with commercial objectives, and it was plain from the whole history of the matter that the Polish State had intended to make it, not a department of State, but a commercial body which could be used by a department of State.” In another case United States v. Deutsches Kalisyndikat Gesellschaft, (1929) 3 P. (2d) 199 (D) a question arose as to an agency for the sale of potash which had been founded by the French Government to deal with potash produced in Alsacelorraine.

31. It was plainly a societe anonyme formed under French Law in which the French Government were majority shareholders, but not the sole shareholders. They retained the right to appoint the majority of the Board and various other rights, and it was a necessary inference from the history of the matter that the French Government had deliberately chosen to make this a commercial concern and not a department.

32. Each case will therefore depend upon the interpretation of the provisions of the Act and although very great powers have been given under this Act to the Central Government to regulate the constitution and the powers of the Corporation and even it may be assumed that the Central Government created this Corporation to carry on certain business activity, but that does not to my mind lay down that the Corporation is a department of the Central Government. There is therefore no substance in the contention of the counsel for the petitioner that as the opposite party Om Prakash is an employee of the Corporation he is in the service of the Central Government inasmuch as the Corporation is a department of the Central Government.

33. The next point which was urged in this connection was that, in any case the Corporation was the agent of the Central Government to carry on certain of its activities and the employee of the agent was the employee of the principal. Reliance was placed in this connection on the case of Shivnandan Sharma v. The Punjab National Bank Ltd., (1955) 1 SCR 1427: ((S) AIR 1955 SC 404 (E)). In that case one Shivnandan Sharma was employed as a head cashier of the Ulna Branch of the Punjab National Bank.

34. The Cash Department of the Bank was in charge of the Treasurers and the relationship between the Treasurers and the Bank was regulated by an agreement. In the opinion of the Bank the cashiers were to be appointed by the Treasurers. The Ulna Branch of the Bank was closed as an uneconomic unit. Thereafter certain industrial disputes were raised by the Union of the workers. The dispute was referred to an Industrial Tribunal by the Government and the award was given by the Tribunal.

35. One of the preliminary objection taken by the Bank was that Shivnandan Sharma not being an employee of the Bank but of the Treasurer there was no dispute between the Bank and its employee and the reference to the Tribunal was illegal. The award was given by the Tribunal on the assumption that the cashier was an employee of the Bank. The Labour Appellate Tribunal set aside the award and held that the cashier was not the employee of the Bank but of the Treasurer.

36. On appeal to the Supreme Court in this case it was held that on the terms of the agreement entered into between the Bank and the Treasurers it was clear that the Treasurers themselves were the servants of the Bank and not independent contractors, and as the direction and control of Shivnandan Sharma and the ministerial staff of the Cash Department of the Bank was entirely vested in the Bank the petitioner Shivnandan Sharma was an employee of the Bank. It was held by the Supreme Court that:

“If a master employs a servant and authorises him to employ a number of persons to do a particular job and to guarantee their fidelity and efficiency for a cash consideration, the employees thus appointed by the servant would be equally with the employer, servant of the master.”

37. It was however held that the question as to whose employee a particular employee is has to be determined with reference to the facts and circumstances of each individual case and “amongst the many tests suggested I think that the most satisfactory, by which to ascertain who is the employer at any particular time, is to ask who is entitled to tell the employee the way in which he is to do the work upon which he is engaged.”

38. In the present case however there is no dispute that the opposite party Om Prakash was the employee of the Insurance Corporation and not of the Central Government. The Insurance Corporation is a statutory body and it cannot be said that it is in its own turn the servant of the Central Government. In the case referred to above it was held by the Supreme Court that the Treasurers themselves were under the employment of the Bank.

39. The defence set up in that case was that the Treasurers were not the employees of the Bank but were independant contractors, and on the interpretation of the agreement between the Bank and the Treasurers it was held that the Treasurers were the employees of the Bank and not independant contractors. From the examination of the provisions of the Act it is clear to my mind that although much powers have been given to the Central Government with regard to the Constitution, formation and the control of the Corporation nonetheless the Corporation is a distinct legal entity created by the statute and has a perpetual succession with a right to hold and acquire property and it cannot be said to be either the employee or a department of the Central Government, and employees of the Corporation cannot be said to be in the service of the Central Government.

40. The next point which was raised by the opposite party was that even assuming that the opposite party was servant of the Central Government and thus disqualified to be chosen or be a member of the board nonetheless he could only be removed by the State Government under Section 40 of the U.P Municipalities Act on that ground, and by means of a writ of quo-warranto it cannot be declared by this Court that he ceased to be a member of the Board. Section 40, sub-s. (1)(b) of the Municipalities Act provides that the State Government in the case of a city, or the Prescribed Authority in any other case, may remove a member of the board on the ground that he has incurred any of the disqualifications mentioned in S. 13-D of the Municipalities Act.

41. It is contended by the counsel for the petitioner that the power given to the State Government under S. 40(1)(b) to remove a member on that ground is discretionary. It may or may not be exercised by the State Government. It cannot therefore be said that the only method by which the effect could be given to S. 13-D was by removal of a member under S. 40. As soon as disqualification was incurred a member ceased to be a member. Emphasis was laid on the words “to be a member” in S. 13-D(f). It was urged that a person who is a servant of the Central Government is not only disqualified to be chosen, but also to be, a member of the board. This expression implies that as soon as a disqualification is incurred he ceases to be a member.

42. Section 38 of the Municipalities Act provides that:

“The term of office of a member elected or nominated to fill a casual vacancy or a vacancy remaining unfilled at the general election shall begin upon the declaration of his election or nomination under the Act and shall be the remainder of the term of the board.”

43. This section to my mind clearly lays down that the term of the office of a member once elected will be for the remainder of the term of the board.

44. Section 40 of the Act gives power to the State Government to remove and if in the exercise of that power a member is removed he may cease earlier to be a member but unless he is removed his term of office continues for the refraining period of the board. By reading S. 13-D(f) together with Ss. 38 and 40 it is clear to my mind that once a member has been declared elected he will continue to be a member for the remaining life of the board unless he has been removed under S. 40 by the State Government on the ground that he has incurred a disqualification enumerated in S. 13-D or any other ground. In this view of the matter the petitioner is not entitled to any relief.

45. I therefore reject this petition with costs. The stay order is discharged and the authorities will proceed in accordance with law.

K.S.B

46. Petition rejected.